Sunday, June 11, 2017

The Credit Card Plan

The times when credit cards were given out to college freshmen like Halloween candy are gone. College students don't qualify any more for credit cards.

As our children entered college, we knew that there's some work to do to keep them financially safe but able to use money as needed without too much hassle.

We considered a debit card, but instead we chose to open a credit card in our name (or use an existing one) and make our college student an authorized user. We did this for a few reasons:

Credit cards are safer than debit cards

Being an authorized user on a credit card helps build credit

We had no worries about our kids over-spending. They are trained to pay the card in full each month from their checking account, and our deal with them is that they would be paying us back for college, so they were careful about how much money was going on their "tab."

The outcome after college

Here's a summary of how this panned out with each of our children. I'll start by saying that making them authorized users was a good idea, and it went smoothly all through college. But after college, obtaining a credit card is still hard to do.

Kid One

After college, Kid One decided to get a debit card. To stay safe, she uses two checking accounts. The one connected to the debit card has only a small amount of money in it. That way, if her debit card is compromised, and she is unable to fully recover the charges, she won't lose much. She keeps an eye on it, and moves money into the account as needed.

Kid Two

After college, Kid Two applied for a credit card. She showed them the offer letter for her job, informed them of her starting salary, and provided all the documents they asked for. They never asked about authorized user, but we all thought that would show up in her credit report. And given that she had a good job straight out of college, we expected the application to be accepted but it wasn't. The letter said she was rejected because she didn't have enough revolving credit, even though her credit score was high.

So we helped her come up with a list of questions and further information to take with her to the bank. Lo and behold, the bank took a second look. The bank rep made the decision to update her first application rather than start over with a new application. He explained that applying and getting rejected hurts your credit score, and he wanted to avoid that.

He called the credit department and pointed out that he has a customer here who just opened a checking account with a wad of money (our graduation gift to her) and that she really needs to be given a second look for a credit card.

Then he put her on the phone directly with the credit department. The credit department rep took an interest in her having been an authorized user. He asked her how many years she had the card, and whether she had been the one responsible to pay it (yes) and whether she had been paying it in full each month (yes).

We are now waiting to see if she is issued the card. If she is not, then she will have to open some store cards to help her build credit, and maybe reapply in six months or a year after she's been working a while. Or she could probably arrange for us to be co-signers, but we didn't immediately go for that because the bank she had chosen doesn't offer cards with co-signers. She would have to switch banks.

A partial list of questions, but there were more:

How do I build my credit?

Does it help that I've been an authorized user for many years on my parents' credit card?

How safe are debit cards

Does using a debit card help build credit

Update: They asked for her birth certificate. The local branch rep said it's possible her authorized user didn't show up on her credit score is that it didn't have her social security number.

Update: Kid Two was approved, starting with a low credit limit, but with a promise that it will rise quickly with heavy use and full monthly payments. To cope with the low limit, she can make extra payments during the month, and if necessary can use our card for which she is an authorized user. The last rep I talked to said the rejection doesn't really hurt her credit score, but I realized it's even better than that -- the rejection got turned into a re-submission which turned into an approval, and so that should wipe out the rejection.

Update: Kid Two tried to create a Credit Karma account or Credit Journey through Chase, but it wouldn't allow her to. She finally found out from calling the Credit Journey number that she doesn't have enough credit info yet to get the account, and she can try again in a few weeks or a few months.

Meanwhile, we went ahead and added her social security number to her old authorized user card because we found out that all updates to her credit score will be retroactive after we add the social security. We did this by calling the number on the credit card and getting connected to the fraud department. They said only the fraud department can add the social.

So maybe just adding the social will make a difference in a few weeks in her being able to create a Credit Karma account.

We now realize that the reason she had so much trouble getting a credit card, and her difficulties opening a credit reporting account such as Credit karma, were because her social was never added to her authorized user card.

Kid Three

Kid Three is still in college. He is using his authorized user credit card just as the other two did. It gets paid in full each month from his own checking account, and, just as with the other two, whenever the checking account gets low, we transfer more in, and put that amount on his "tab."

We have now checked and have found out that his social is already on his authorized user card.

When he finishes college and applies for a credit card, we now know from our experience with Kid Two to equip him to talk about being an authorized user on our line of credit, but in any case, they should be able to see his authorized user activity in his credit report because his social security number is tied to his account.

Not surprisingly, even though he's only a college sophomore, he had no trouble opening a Credit Karma account. That's because his social was already on the card, so he actually had enough credit information for an account.

Conclusion:

We've learned a lot, and hope the process of applying for his own card will be easier for him when he leaves college than it was for Kid Two.

Here's my list of what to do:

Get your kid an authorized user card

Add his or her social security by calling the company and requesting to do so. Have both of you available to talk on the phone.

Try opening a Credit Karma account or the equivalent. Keep trying until there's enough activity on the authorized user card that you are successful.

Remind your kid that they must always pay in full. Best to set up an autopay to get this done

Periodically check the credit report for mistakes and omissions.

Once your kid has a job offer, find an online checklist to follow to ensure your kid won't get rejected the first time trying to apply for a card

Dispatch them to go to the bank and get their own card. When they bank asks him if he has been paying his authorized user card in full every month, the answer is yes. When the bank asks him if he is the one responsible for paying his bill every month, the answer is yes.

Family Accounts make sense until they don't

Over time as we're raising our children, it seems only natural to share accounts with them. It's easy, and often cheaper. And in some cases, it's the only way.

Our agreement with our children is that once they graduate from high school, all expenses including college go on their "tab" which they pay us back on a plan after college. This also includes their portion of the shared accounts.

Because they know they are financially responsible for themselves and are on our accounts, this led to many fruitful discussions about finances over the years. I want to add here that these discussions took a good deal of time, but were well worth all the time investment, as they turned into savvy consumers.

But there comes a time to disentangle.

After our children finished college and/or immediately once they were gainfully employed, we started the unenmenshment process.

I'm writing this post, and one other post linked to below, to keep an accurate record for myself, but it's also my hope that it can benefit others who might stumble across it in cyberspace. Even though every family will make their own decisions which could be different from ours, it may still be helpful to read this and get the idea that financial disentanglement from one's adult children is a THING.

Opening their own accounts

With each of these accounts, we helped them to do the research, and we helped them with the process of opening their own accounts.

Car insurance We had everyone on our car insurance. Once out of college, we helped them choose the best car insurance. We then revamped our own. This meant title transfer.

Cellphone service While they were in high school and college, we had everyone on our cellphone service. Starting when they were in college, they each paid a portion of the bill every month and any overage fees, as we determined was reasonable (it went on their tab). As each of them left college, they chose their own cellphone service, based on their knowledge of their own usage history. Then we revamped our own.

Checking account While in high school and college, they each had a student checking account through our bank, and a debit/ATM card which they used only for ATM cash. Once they left college, they chose their own bank and opened their own checking account with a wad of cash we gave each of them as a graduation gift.

Credit card While in high school and college, they each were an authorized user on our line of credit. This item is a little longer than the others, so I wrote a separate post. Here's my post about credit cards.

Crashplan Crashplan is the tool we use for off-site data backup. (By way of illustration, another popular choice is called "Carbonite.") We had every family member's computer getting backed up in the one "family plan" account. After college, two kids moved to Chromebooks with cloud storage, and one stayed with Windows but arranged her own individual Crashplan account. Then we reduced our own to an individual plan.

Lastpass They each have their own Lastpass Free account (this is a password protection tool), but we had many websites shared between our Lastpass and theirs. As they left college, we moved any remaining accounts of theirs to their Lastpass, and now they are on their own to occasionally run the security tool and update their own website passwords. We figure that we modeled for them enough over the years how to best make use of Lastpass. They are still using the free version, which is probably all they need.

Some accounts they already had separate

Accounts they already had separate. Those linked to a bank account needed to be updated to their own bank accounts.

Triple A was always separate

EZ-Pass was always separate

Uber, Zipcar, Lyft Our whole family is relatively new to these services, so we never did share an account with them to begin with. Each of them now has their own accounts of their choice.

Itunes was always separate

Paypal was always separate

Accounts we kept them on

These accounts are trivial and unimportant, so in the end, we were fine with keeping these with our kids.

Netflix We all get to watch Netflix on one account (unless we are all trying to use it at the same time, but it's no big deal.)

Amazon Prime Over the years, Amazon changed their policy so that only one family member could have a separate account that uses our Prime advantage. So, the oldest is on her own. The middle child has that separate account that uses our Prime. And the youngest, still in college, is allowed to log into our account, as he only uses it occasionally and only for school textbooks which he gets shipped to school. He's careful to make sure I don't have something already sitting in the shopping cart at the time he's ordering. It's really not a problem.

Family Accounts make sense until they don't

Over time as we're raising our children, it seems only natural to share accounts with them. It's easy, and often cheaper. And in some cases, it's the only way.

Our agreement with our children is that once they graduate from high school, all expenses including college go on their "tab" which they pay us back on a plan after college. This also includes their portion of the shared accounts.

Because they know they are financially responsible for themselves and are on our accounts, this led to many fruitful discussions about finances over the years. I want to add here that these discussions took a good deal of time, but were well worth all the time investment, as they turned into savvy consumers.

But there comes a time to disentangle.

After our children finished college and/or immediately once they were gainfully employed, we started the unenmenshment process.

I'm writing this post, and one other post linked to below, to keep an accurate record for myself, but it's also my hope that it can benefit others who might stumble across it in cyberspace. Even though every family will make their own decisions which could be different from ours, it may still be helpful to read this and get the idea that financial disentanglement from one's adult children is a THING.

Opening their own accounts

With each of these accounts, we helped them to do the research, and we helped them with the process of opening their own accounts.

Car insurance We had everyone on our car insurance. Once out of college, we helped them choose the best car insurance. We then revamped our own. This meant title transfer.

Cellphone service While they were in high school and college, we had everyone on our cellphone service. Starting when they were in college, they each paid a portion of the bill every month and any overage fees, as we determined was reasonable (it went on their tab). As each of them left college, they chose their own cellphone service, based on their knowledge of their own usage history. Then we revamped our own.

Checking account While in high school and college, they each had a student checking account through our bank, and a debit/ATM card which they used only for ATM cash. Once they left college, they chose their own bank and opened their own checking account with a wad of cash we gave each of them as a graduation gift.

Credit card While in high school and college, they each were an authorized user on our line of credit. This item is a little longer than the others, so I wrote a separate post. Here's my post about credit cards.

Crashplan Crashplan is the tool we use for off-site data backup. (By way of illustration, another popular choice is called "Carbonite.") We had every family member's computer getting backed up in the one "family plan" account. After college, two kids moved to Chromebooks with cloud storage, and one stayed with Windows but arranged her own individual Crashplan account. Then we reduced our own to an individual plan.

Lastpass They each have their own Lastpass Free account (this is a password protection tool), but we had many websites shared between our Lastpass and theirs. As they left college, we moved any remaining accounts of theirs to their Lastpass, and now they are on their own to occasionally run the security tool and update their own website passwords. We figure that we modeled for them enough over the years how to best make use of Lastpass. They are still using the free version, which is probably all they need.

Some accounts they already had separate

Accounts they already had separate. Those linked to a bank account needed to be updated to their own bank accounts.

Triple A was always separate

EZ-Pass was always separate

Uber, Zipcar, Lyft Our whole family is relatively new to these services, so we never did share an account with them to begin with. Each of them now has their own accounts of their choice.

Itunes was always separate

Paypal was always separate

Accounts we kept them on

These accounts are trivial and unimportant, so in the end, we were fine with keeping these with our kids.

Netflix We all get to watch Netflix on one account (unless we are all trying to use it at the same time, but it's no big deal.) Update: as of the last kid being in college, we ditched Netflix altogether, and they all coped.

Amazon Prime Over the years, Amazon changed their policy so that only one family member could have a separate account that uses our Prime advantage. So, the oldest is on her own. The middle child has that separate account that uses our Prime. And the youngest, still in college, is allowed to log into our account, as he only uses it occasionally and only for school textbooks which he gets shipped to school. He's careful to make sure I don't have something already sitting in the shopping cart at the time he's ordering.

It never really ends

In November of 2018, long after the unenenmeshment, our third kid used her phone app to order from Amazon which defaulted to her old credit card which is now ours. It took an hour and a half to figure out what happened, including a lovely chat with Amazon. That's a separate post.

The Credit Card Plan

The times when credit cards were given out to college freshmen like Halloween candy are gone. College students don't qualify any more for credit cards.

As our children entered college, we quickly discovered that there's some work to do to keep them financially safe but able to use money as needed without too much hassle.

We considered a debit card, but instead we chose to open a credit card in our name (or use an existing one) and make our college student an authorized user. We did this for a few reasons:

Credit cards are safer than debit cards

Being an authorized user on a credit card helps build credit

We had no worries about our kids over-spending. They are trained to pay the card in full each month from their checking account, and our deal with them is that they would be paying us back for college, so they were careful about how much money was going on their "tab."

The outcome after college

Here's a summary of how this panned out with each of our children. I'll start by saying that making them authorized users was a good idea, and it went smoothly all through college. But after college, obtaining a credit card is still hard to do.

Kid One

After college, Kid One decided to get a debit card. To stay safe, she uses two checking accounts. The one connected to the debit card has only a small amount of money in it. That way, if her debit card is compromised, and she is unable to fully recover the charges, she won't lose much. She keeps an eye on it, and moves money into the account as needed.

Kid Two

After college, Kid Two applied for a credit card. She showed them the offer letter for her job, informed them of her starting salary, and provided all the documents they asked for. They never asked about authorized user, but we all thought that would show up in her credit report. And given that she had a good job straight out of college, we expected the application to be accepted but it wasn't. The letter said she was rejected because she didn't have enough revolving credit, even though her credit score was high.

So we helped her come up with a list of questions and further information to take with her to the bank. Lo and behold, the bank took a second look. The bank rep made the decision to update her first application rather than start over with a new application. He explained that applying and getting rejected hurts your credit score, and he wanted to avoid that.

He called the credit department and pointed out that he has a customer here who just opened a checking account with a wad of money (our graduation gift to her) and that she really needs to be given a second look for a credit card.

Then he put her on the phone directly with the credit department. The credit department rep took an interest in her having been an authorized user. He asked her how many years she had the card, and whether she had been the one responsible to pay it (yes) and whether she had been paying it in full each month (yes).

We are now waiting to see if she is issued the card. If she is not, then she will have to open some store cards to help her build credit, and maybe reapply in six months or a year after she's been working a while. Or she could probably arrange for us to be co-signers, but we didn't immediately go for that because the bank she had chosen doesn't offer cards with co-signers. She would have to switch banks.

Kid Three

Kid Three is still in college. He is using the credit card just as the other two did. It gets paid in full each month from his own checking account, and, just as with the other two, whenever the checking account gets low, we transfer more in, and put that amount on his "tab."

When he finishes college and applies for a credit card, we now know from our experience with Kid Two to equip him to talk about being an authorized user on our line of credit.